Trump’s China tariffs are about more than just trade

The US president has expanded tariffs against China, putting a trade deal in doubt. Is this an effort to gain more leverage in a potential final lap of trade talks or a reflection of genuine lack of progress?

US President Donald Trump on Friday ramped up tariffs
on $200 billion (€178 billion) worth of Chinese imports, citing the
slow pace of trade talks with Beijing. Chinese consumer products
— including cell phones, computers, clothing and toys — are especially
targeted by the tariff rate increase from 10% to 25%.

The move
comes even as US and Chinese officials are in Washington to take part in
talks aimed at ending a trade war between the world’s largest
economies.

The increase is “a reminder that the trade
negotiations have a high degree of uncertainty,” Max Zenglein, head of
the economics program at Berlin’s Mercator Institute for China Studies
(MERICS), told DW. “The underlying issue is an increasing rivalry
between the US and China which goes far beyond the trade deficit.”

“I can see two possible goals Trump is trying to
achieve. First, focused on US domestic audiences, he wants to appear to
be ‘tough’ on China, and to maintain his image among domestic
constituencies as a trade warrior fighting on behalf of the US,”
Geoffrey Gertz, a fellow at the Brookings Institution, told DW.

“Second,
he and his advisers may be hoping this will increase pressure on China
and convince them to agree to a deal; however, this may backfire, as
Chinese negotiators need to be responsive to China’s domestic politics
as well, and it will be difficult for them to appear to be bowing to
foreign pressure.”

China’s ‘limited’ options

China has vowed to take “necessary countermeasures” in response to
the latest tariff hike. The Chinese Commerce Ministry did not provide
details of the possible retaliation.

The ministry said
negotiations were continuing, and that it “hopes the United States can
meet China halfway, make joint efforts, and resolve the issue through
cooperation and consultation.”

China responded to the previous
rounds of tariff increases by slapping taxes on $110 billion worth of US
products. But the country, which shares a huge trade surplus with the
US, is running out of US products it can target. China bought $120
billion worth of US goods last year, crude oil and large aircraft, both
of which are yet to be hit with tariffs.

Chinese regulators are
reported to be targeting US companies operating in China by stepping up
regulatory scrutiny and slowing down custom clearances for their
shipments.

Another option at China’s disposal is to allow its
currency yuan to weaken versus the dollar. Experts say the Chinese
central bank has been ensuring in recent months that yuan remained
stable against the dollar as “a gesture of goodwill during the trade
talks.”

If talks with the US were to break, the Chinese
authorities will have an incentive “to allow the currency to weaken,
both to retaliate and to soften the impact of tariffs on export growth,”
Julian Evans-Pritchard, a China economist at Capital Economics, said in
a note to clients.

Evans-Pritchard said the latest tariff hike
would knock off 0.1% of China’s Gross Domestic Product (GDP), while a
25% tariff on the remaining Chinese imports to the US, as threatened by
Trump, would knock off 0.2%.

“With the (Chinese) economy still struggling to escape from a cyclical slowdown, policymakers are likely to err on the side of caution by stepping in to shore up growth,” he wrote. “With budget constraints and tighter regulation limiting the scope for further fiscal loosening, this will most likely come in the form of further monetary easing.”

Pressure tactic or genuine roadblock?

The
timing of Trump’s move triggered speculations that it was aimed at
creating pressure on Beijing during the talks in Washington.

Chinese
government officials said in Beijing that Trump’s decision was in
conflict with the progress made to date in the trade negotiations.

“So
at least one party to the negotiations seems to view this as an attempt
at creating leverage,” Doug Barry of the US-China Business Council told
DW.

US negotiators are reported to have become frustrated by
China’s attempts to backpedal on earlier commitments made over the deal,
including one related to forcing foreign companies to share their
technology. The other sticking points are how to enforce an eventual
deal and the fate of the existing US tariffs on Chinese goods that
Beijing wants removed.

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